Marx used the term mode of production to refer to the specific organization of economic production in a given society. A mode of production includes the means of production used by a given society, such as factories and other facilities, machines, and raw materials. It also includes labor and the organization of the labor force. The term relations of production refers to the relationship between those who own the means of production (the capitalists or bourgeoisie) and those who do not (the workers or the proletariat). According to Marx, history evolves through the interaction between the mode of production and the relations of production. The mode of production constantly evolves toward a realization of its fullest productive capacity, but this evolution creates antagonisms between the classes of people defined by the relations of production—owners and workers.

Capitalism is a mode of production based on private ownership of the means of production. Capitalists produce commodities for the exchange market and to stay competitive must extract as much labor from the workers as possible at the lowest possible cost. The economic interest of the capitalist is to pay the worker as little as possible, in fact just enough to keep him alive and productive. The workers, in turn, come to understand that their economic interest lies in preventing the capitalist from exploiting them in this way. As this example shows, the social relations of production are inherently antagonistic, giving rise to a class struggle that Marx believes will lead to the overthrow of capitalism by the proletariat. The proletariat will replace the capitalist mode of production with a mode of production based on the collective ownership of the means of production, which is called Communism.

In his early writings, which are more philosophical than economic, Marx describes how the worker under a capitalist mode of production becomes estranged from himself, from his work, and from other workers. Drawing on Hegel, Marx argues that labor is central to a human being’s self-conception and sense of well-being. By working on and transforming objective matter into sustenance and objects of use-value, human beings meet the needs of existence and come to see themselves externalized in the world. Labor is as much an act of personal creation and a projection of one’s identity as it is a means of survival. However, capitalism, the system of private ownership of the means of production, deprives human beings of this essential source of self-worth and identity. The worker approaches work only as a means of survival and derives none of the other personal satisfactions of work because the products of his labor do not belong to him. These products are instead expropriated by capitalists and sold for profit.

In capitalism, the worker, who is alienated or estranged from the products he creates, is also estranged from the process of production, which he regards only as a means of survival. Estranged from the production process, the worker is therefore also estranged from his or her own humanity, since the transformation of nature into useful objects is one of the fundamental facets of the human condition. The worker is thus alienated from his or her “species being”—from what it is to be human. Finally, the capitalist mode of production alienates human beings from other human beings. Deprived of the satisfaction that comes with owning the product of one’s labor, the worker regards the capitalist as external and hostile. The alienation of the worker from his work and of the worker from capitalists forms the basis of the antagonistic social relationship that will eventually lead to the overthrow of capitalism.

As noted previously, the writings of the German idealist philosopher Hegel had a profound impact on Marx and other philosophers of his generation. Hegel elaborated a dialectical view of human consciousness as a process of evolution from simple to more complex categories of thought. According to Hegel, human thought has evolved from very basic attempts to grasp the nature of objects to higher forms of abstract thought and self-awareness. History evolves through a similar dialectical process, whereby the contradictions of a given age give rise to a new age based on a smoothing over of these contradictions. Marx developed a view of history similar to Hegel’s, but the main difference between Marx and Hegel is that Hegel is an idealist and Marx is a materialist. In other words, Hegel believed that ideas are the primary mode in which human beings relate to the world and that history can be understood in terms of the ideas that define each successive historical age. Marx, on the other hand, believed that the fundamental truth about a particular society or period in history is how that society is organized to satisfy material needs. Whereas Hegel saw history as a succession of ideas and a working out of contradictions on a conceptual level, Marx saw history as a succession of economic systems or modes of production, each one organized to satisfy human material needs but giving rise to antagonisms between different classes of people, leading to the creation of new societies in an evolving pattern.

The labor theory of value states that the value of a commodity is determined by the amount of labor that went into producing it (and not, for instance, by the fluctuating relationship of supply and demand). Marx defines a commodity as an external object that satisfies wants or needs and distinguishes between two different kinds of value that can be attributed to it. Commodities have a use-value that consists of their capacity to satisfy such wants and needs. For the purposes of economic exchange, they have an exchange-value, their value in relation to other commodities on the market, which is measured in terms of money. Marx asserts that in order to determine the relative worth of extremely different commodities with different use-values, exchange-value, or monetary value, must be measurable in terms of a property common to all such commodities. The only thing that all commodities have in common is that they are a product of labor. Therefore, the value of a commodity in a market represents the amount of labor that went into its production.

The labor theory is important in Marx’s work not because it gives special insight into the nature of prices (economists today do not use this theory to explain why commodities are priced as they are) but because it forms the foundation of Marx’s notion of exploitation. In the simplest form of exchange, people produce commodities and sell them so that they can buy other commodities to satisfy their own needs and wants. In such exchanges, money is only the common medium that allows transactions to take place. Capitalists, in contrast, are motivated not by a need for commodities but by a desire to accumulate money. Capitalists take advantage of their power to set wages and working hours to extract the greatest amount of labor from workers at the lowest possible cost, selling the products of the workers at a higher price than the capitalists paid for them. Rather than buy or sell products at their true exchange-value, as determined by the labor that went into making them, capitalists enrich themselves by extracting a “surplus-value” from their laborers—in other words, exploiting them. Marx pointed to the abject poverty of industrial workers in places like Manchester for proof of the destructive effects of this exploitative relationship.

The word fetish refers to any object that people fixate on or are fascinated by and that keeps them from seeing the truth. According to Marx, when people try to understand the world in which they live, they fixate on money—who has it, how is it acquired, how is it spent—or they fixate on commodities, trying to understand economics as a matter of what it costs to make or to buy a product, what the demand for a product is, and so on. Marx believed that commodities and money are fetishes that prevent people from seeing the truth about economics and society: that one class of people is exploiting another. In capitalism, the production of commodities is based on an exploitative economic relationship between owners of factories and the workers who produce the commodities. In everyday life, we think only of the market value of a commodity—in other words, its price. But this monetary value simultaneously depends on and masks the fact that someone was exploited to make that commodity.

The concept of commodity fetishism applies both to the perceptions of normal people in everyday life and to the formal study of economics. Economists, both then and now, study the economy in terms of the movements of money, goods, and prices, which is essentially the point of view of the corporation. From this point of view, the social dimension of economic life is considered unscientific and unworthy of discussion. Marx argues that this commodity fetishism allows capitalists to carry on with day-to-day affairs of a capitalist mode of production without having to confront the real implications of the system of exploitation on which they depend.